Will Amazon.com and Time Warner Destroy Netflix?

Is the new deal between Amazon and Time Warner's HBO a big threat for Netflix?

Apr 26, 2014 at 3:00PM

Nflx Image

Source: Netflix.

Netflix (NASDAQ:NFLX) fell by 5.2% on Wednesday after investors reacted with fear to the news that Amazon.com (NASDAQ:AMZN) and Time Warner's (NYSE:TWX) HBO will be joining forces in the online streaming competition. Is this an overblown short-term reaction, or will the alliance between Amazon and Time Warner inflict serious damage on Netflix?

Tony Soprano joins the online revolution
announced on Wednesday that Prime Instant Video will be the exclusive online-only subscription home for select HBO programing. HBO content will become available on Amazon Prime on May 21, and the agreement between Amazon and Time Warner includes widely popular hits such as The Sopranos, Six Feet Under, and Band of Brothers, among many others.

Shows will be available on Amazon Prime Instant Video three years after the original broadcast. That means Game of Thrones is currently not included. Neither are other titles such as Sex and the City and Curb Your Enthusiasm because of previously existing syndication deals that HBO has signed with other outlets.

In addition, HBO Go will now be available on Amazon's new set-top box, Fire TV. Amazon's incoming device in the battle for the living room offers solid specifications for a competitive price, and not including access to HBO Go was one of the biggest disadvantages of Fire TV versus competing set-top boxes before this deal with Time Warner. Now that Amazon and HBO are on the same side in the streaming business, Fire TV is overcoming a major drawback.

Amazon and Time Warner did not disclose the length of the agreement or its financial terms, but Amazon is clearly adding valuable content to its library, and this is a major factor in the competition for streaming.

As for Time Warner's HBO, this is the first time the company has gotten involved in an online streaming deal, so the financial compensation must be convenient enough if the company has decided to finally enter a licensing agreement with an online-only streaming partner.

Is Netflix in trouble?
Amazon and Time Warner's HBO are clearly two of the biggest competitive threats that Netflix is facing. In fact, in its latest letter to to shareholders, management proudly quotes a survey saying that viewers rate Neflix as the second best original programing outlet, second only to HBO.

Changes in the competitive landscape are always worth watching, especially in such a dynamic growth industry like online streaming, so investors need to monitor the alliance between Amazon and Time Warner and its possible impact on Netflix.

On the other hand, it's worth noting that there is no reason to believe that online streaming will necessarily be a zero-sum game in which a single winner takes all the profits and all the other companies are left with empty hands.

Just like the traditional TV business, online streaming could easily provide enough room for Netflix, Amazon, and other players to succeed and grow in the long term.

From Netflix's letter to shareholders: "Since much of the content on Netflix and Amazon Prime -- as well as Hulu in the U.S. -- is mutually exclusive, many consumers see value in subscribing to all three networks." 

Netflix is growing at full speed on the back of the competitive differentiation provided by high-quality original content. The company added 4 million members in the first quarter of 2014 for a total of 48 million subscribers, including both the U.S. and international markets.

This is not only an impressive growth rate on a standalone basis, but even an acceleration in growth versus the 3.05 million new members the company gained in the first quarter of 2013.

Netflix is thriving over the past several years in spite of growing competition from Amazon, Time Warner's HBO, Hulu, and others. The online streaming business is gaining share versus traditional video at an impressive speed, and it still has a lot of room for growth on a global basis.

As long as Netflix continues doing a sound job at providing desirable exclusive content for a convenient price, growing competitive pressure is no reason to stay away from the company.

Bottom line
Increased competitive pressure is always a risk to watch, especially when coming from powerful players such as Amazon and Time Warner's HBO. However, the online video industry provides enormous room for growth in the years ahead, and Netflix is moving in the right direction when it comes to competitive differentiation and subscriber growth. The online streaming leader is no house of cards.

How to profit from the war for your living room
You know cable's going away. But do you know how to profit? There's $2.2 trillion out there to be had. Currently, cable grabs a big piece of it. That won't last. And when cable falters, three companies are poised to benefit. Click here for their names. Hint: They're not Netflix, Google, and Apple. 


Andrés Cardenal owns shares of Amazon.com, Apple, Google (C shares), and Netflix. The Motley Fool recommends and owns shares of Amazon.com, Apple, Google (A and C shares), and Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers